Before the Union budget, a suggestion has been incurred by the banking sector via the Indian Banks’ Association (IBA), to the Union finance ministry on direct tax along with the elimination of Section 194N of the Income Tax Act.
Tax deduction at source (TDS) as per section 194N is needed to be executed when the sum or sums were withdrawn in cash by the person in the fiscal year is more than Rs 20 lakh when no ITR would have been furnished for 3 former assessment years and Rs 1 cr when the Income tax returns would have been furnished in all the 3 former assessment years.
A 2% tax would be deducted on cash withdrawals exceeding Rs 1 cr when the individual withdrawing the cash would furnish the income tax returns and for the people who do not have furnished the income tax returns, the same would be 2% on withdrawing the cash exceeding Rs 20 lakh and 5% on those having more than Rs 1 cr.
“Section 194N has cast liability on banks to deduct TDS in case of withdrawal of cash from accounts above a specified limit. Banks are facing practical difficulty in implementing the same and collecting TDS amount from the customer’s account,” the IBA stated in its pre-Budget suggestions.
As per RBIs guidelines, the IBA would mention in its suggestions that banks would need to permit the customers to withdraw their needs without the adjustment of TDS. From the customer’s account, the tax would get debited and could not get adjusted against the cash withdrawn.
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It is seen that a minimum balance needed to maintain is not being done by the customers in their accounts and the banks would be needed to deposit the tax via their own funds. The same would results in additional losses for the banks, IBA mentioned.
